There are smart ways to diversify our exports

The Bank of Canada recently cut interest rates again, with further cuts likely in response to Donald Trump’s threat to impose tariffs on Canadian exports. This continues the Bank’s reflexive turn to lower interest rates to goose growth every time the economy slows that began during the 2008 global financial crisis and reached its apex during the outbreak of the Covid pandemic when rates essentially hit their zero lower bound.

It’s time policymakers in Ottawa stop relying on easy money policies in response to every hiccup in economic growth. Lower interest rates have introduced major distortions into Canada’s economy. They have fueled excessive debt levels in all sectors of the economy, helped to create a housing bubble that will depress growth when it bursts, undermined our consensus on the usefulness of immigration when excessive demand raised the cost of shelter, and led youths to lose hope of achieving the dream of owning a home. Housing’s unsustainably large share of our economy helps undermine our potential productivity, the lack of which Bank of Canada Deputy Governor Carolyn Rogers last year called a “break the glass” emergency. However, the Bank’s own easy money policies spurs the shift of more resources to housing and encourage governments to ignore taking actions that would boost business investment and exports, the two sectors needed to improve our long-term productivity and competitiveness.

There are policy alternatives to just mechanically lowering interest rates and juicing housing demand. The silver lining in Trump’s tariff threats is they drive home to Canadians the twin follies of not diversifying our energy exports from the U.S. market and not lowering internal barriers to trade among our provinces. We witlessly ignored opportunities to move on both fronts for nearly a decade after Trump fired his opening salvo in the trade war with punitive tariffs on our aluminum and steel industries in 2017.

Energy, our leading export, depends on the U.S. market for 93 per cent of its export earnings. Canada has wasted numerous opportunities over the past decade to open overseas markets for oil and gas. The Trudeau government cancelled the Northern Gateway pipeline that would have sent Alberta crude to Asia. The proposed Energy East pipeline to send oil to New Brunswick and ultimately Europe floundered after the federal government complicated the approval process. Multiple proposals for LNG projects were rejected, although the Quebec government is reconsidering its opposition to ship natural gas from an LNG terminal in Saguenay to Europe. Quebec is not reflexively against pipelines: its former Premier Jean Charest boasts how his government oversaw one connecting crude oil imports landing at Levis to refineries in Montreal by clearly outlining the benefits to Quebecers. Restricting our oil and gas exports to the U.S. has depressed their prices, costing Canada tens of billions of dollars of lost revenue and betraying our European allies when they desperately needed alternatives to Russian natural gas supplies following its attack on Ukraine.

Meanwhile, the federal government displayed little leadership in trying to get the provinces to reduce the thicket of regulations and restrictions that impair trade within Canada. The 2017 Canada Free Trade Agreement provided a road map to potentially lower internal trade barriers, but most provinces have been reluctant to tread that path. It is the height of hypocrisy for Canadians to complain about Trump’s threatened tariffs when we tolerate internal trade barriers that are every bit as important and costly to our economy. Statistics Canada, for example, found that trade within Canada moves as if there were a 7 per cent tariff on goods moving between provinces, while trade within the U.S. flows as if there was no effective tariff.

The shock and outrage Canadians are expressing about Trump’s pending 25 per cent tariff on most exports can be channeled to our benefit. Achieving that will require governments to stop our dangerous over-reliance on low interest rates to stimulate housing. Instead, the focus should be improving our access to markets outside the U.S., which are clearly viable and profitable for goods such as oil and gas. Furthermore, if we truly believe our own rhetoric about the benefits of trade, we need to take concrete steps to liberalize trade within Canada.

Philip Cross

Senior Fellow, Fraser Institute

Related Topics:#CanadaExports #FraserInstitute #PhilipCross InterprovincialTrade TrumpTariffs

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Government debt burden increasing across Canada

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Government debt burden increasing across Canada

Published on February 20, 2025

Todayville

From the Fraser Institute

By Tegan Hill, Jake Fuss and Spencer Gudewill

As governments across Canada unveil their 2025 budgets, outlining their tax and spending plans for the upcoming fiscal year, they have an opportunity to reverse the trend of deficits and increasing debt that has reigned in recent years.

Indeed, budget deficits, which fuel debt accumulation, have become a serious fiscal challenge for the federal and many provincial governments, primarily due to high levels of government spending. Since 2007/08—the final fiscal year before the financial crisis—combined federal and provincial net debt (inflation-adjusted) has nearly doubled from $1.2 trillion to a projected $2.3 trillion in 2024/25. And you can’t blame COVID, as combined federal and provincial net debt (inflation-adjusted) increased by nearly $600 billion between 2007/08 and 2019/20.

Federal and provincial net debt (inflation-adjusted) per person has increased in every province since 2007/08. As shown in the below chart, Newfoundland and Labrador has the highest combined (federal and provincial) debt per person ($68,516) in 2024/25 followed by Quebec ($60,565) and Ontario ($60,456). In contrast, Alberta has the lowest combined debt per person ($41,236) in the country. Combined federal and provincial net debt represents the total provincial net debt, and the federal portion allocated to each of the provinces based on a five-year average (2020-2024) of their population as a share of Canada’s total population.

The combined federal and total provincial debt-to-GDP ratio, an important fiscal indicator that compares debt with the size of the overall economy, is projected to reach 75.2 per cent in 2024/25. By comparison, the ratio was 53.2 per cent in 2007/08. A rising debt-to-GDP ratio indicates government debt has grown at an unsustainable rate (in other words, debt levels are growing faster than the economy). Among the provinces, the combined federal-provincial debt-to-GDP ratio is highest in Nova Scotia (92.0 per cent) and lowest in Alberta (42.2 per cent). Again, the federal debt portion is allocated to provinces based on a five-year average (2020-2024) of their population as a share of Canada’s total population.

Interest payments are a major consequence of debt accumulation. Governments must make interest payments on their debt similar to households that must pay interest on mortgages, vehicles or credit card spending. When taxpayer money goes towards interest payments, there’s less money available for tax cuts or government programs such as health care and education.

Interest on government debt (federal and provincial) costs each Canadian at least $1,930 in 2024/25. The amount, however, varies by province. Combined interest costs per person are highest in Newfoundland and Labrador ($3,453) and lowest in Alberta ($1,930). Similar to net debt, combined federal and provincial interest costs are represented by the total of the provincial and federal portion with the federal portion allocated to each of provinces based on a five-year average (2020-2024) of their population as a share of Canada’s total population.

Debt accumulation comes with consequences for everyday Canadians as more and more taxpayer money flows towards interest payments rather than tax relief or programs and services. This budget season, federal and provincial governments should develop long-term plans to meaningfully address the growing debt problem in Canada.

Business

Elon Musk to consult President Trump on potential ‘DOGE dividend’ tax refunds

Published on February 19, 2025

Todayville

MxM News

Quick Hit:

Elon Musk announced he will consult with President Donald Trump on a proposal to issue tax refund checks to Americans using savings from the Department of Government Efficiency (DOGE). The idea, originally suggested by Azoria CEO James Fishback, would involve distributing a portion of the funds DOGE claims to have saved from government cost-cutting measures. While Musk aims to reduce federal spending by $2 trillion, questions remain about the actual savings achieved by DOGE.

Key Details:

Musk responded on X that he would “check with the President” regarding the proposed tax refunds.
The plan suggests using 20% of DOGE’s $2 trillion spending cut goal—roughly $400 billion—to provide up to $5,000 per household.
Reports indicate that DOGE’s reported savings may be overstated, with Bloomberg and the New York Times pointing to discrepancies in the numbers.

Diving Deeper:

Elon Musk’s latest proposal to return taxpayer dollars through a “DOGE Dividend” has sparked discussion on federal spending and fiscal responsibility. The initiative, first floated by James Fishback, argues that savings uncovered by DOGE’s cost-cutting efforts should be refunded to taxpayers. Fishback compared it to a private sector refund when a company fails to deliver on its promises.

Musk, who leads DOGE’s advisory group, has set an ambitious goal of cutting $2 trillion from the federal government’s $6.75 trillion budget. Under Fishback’s model, 20% of those savings—$400 billion—could be distributed among American households, potentially yielding checks of around $5,000 per family.

However, skepticism surrounds DOGE’s actual savings. Bloomberg reported that only $16.6 billion of the $55 billion in savings claimed by DOGE is accounted for on its website. The New York Times revealed a miscalculation in which DOGE erroneously reported an $8 billion saving on a federal contract that was actually $8 million.

Despite legal challenges against DOGE’s authority, a federal judge recently denied an injunction that sought to block the agency’s access to federal databases or its ability to recommend government employee firings.

The concept of direct payments from the federal government has precedent. During the COVID-19 pandemic, the Trump administration issued stimulus checks to Americans, with Trump’s signature appearing on IRS payments for the first time in history. Whether the current proposal will gain traction under Trump’s leadership remains to be seen.

Musk’s willingness to discuss the idea with President Trump signals that the proposal may be seriously considered, though practical and political hurdles remain.